Crypto Market Commentary
26 August 2019
Doc's Daily Commentary
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Mind Of Mav
What Is An STEO? The New STO? The New IEO? Both?
A new crowd funding model? Seriously?!
Yes. It could be everything we’ve hoped for, or just more hit air.
Let’s first talk about how we got here.
- ICOs As the First Appearance of Mass Crypto Crowdfunding
Over the past few years since cryptocurrencies came around, we have seen the crowdfunding space go through significant changes. Initially, ICOs seemed like the perfect way for new projects to raise funds as they allowed everyone to participate in early-stage fundraising. The process was fast and lucrative.
Below you can see a list of the top ten most profitable projects so far and how much profit the investors who bought the tokens during the various ICOs have gained over time.
However, ICOs were plagued with many disadvantages. They lacked clear regulatory oversight, and this allowed for many fraudulent activities, including over-promising results, Ponzi-schemes, poor reporting, and investor manipulation.
After the peak of the ICO market towards the end of 2017, the following year began with many regulators around the world watching the industry with loads scrutiny. The US Securities and Exchange Commission led the way, indicting several projects that were involved in fraudulent behaviour.
- The Rise Of STOs
As regulatory bodies around the globe enforced strict regulations within the industry, projects seeking to raise funds realized that they had no other choice but to comply with the regulatory requirements set by the likes of the SEC.
This led to the birth of STOs, where companies began focusing their offerings on the investment aspect of the token as opposed to the utility aspect. STOs offered several promises, including adding liquidity to markets, making markets more accessible and transparent, which enabled 24/7 instant trading and helped projects attract new types of investors.
A recent report by Inwara shows that STOs experienced a notable surge in the first quarter of 2019 with an increase of 130%. Interestingly, the same report indicated that there was a significant drop in the number of ICOs that were offered within the same period.
- The Rise Of IEOs
2019 has not only seen the rise of STOs but that of IEOs, a new form of fundraising where tokens are offered through exchanges.
IEOs offer several benefits for new projects, including assurance that their tokens will be immediately listed on the exchanges. Also, the project gets exposed to millions of investors that use the exchange and most importantly, investors are protected since the exchange carries out due diligence before offering an IEO.
At the beginning of the year, Binance initiated the Binance launchpad that promised to support at least one good project per month. So far six projects have managed to successfully raise funding through the platform including BitTorrent, Fetch.AI, Celer Network, Matic, Harmony and Elrond.
Below is a chart that shows IEOs with the best ROI so far.
The success of the launchpad has inspired other exchanges to initiate similar platforms of their own to ensure they don’t miss out on the benefits that come with IEOs, including injecting liquidity.
If anything stands out within the crypto space is how fast things are changing. When ICOs came around, they seemed like the perfect solution to fundraising, but, their many disadvantages led to the birth of STOs and now IEOs.
However, it seems the perfect solution to fundraising within the space could be a combination of both Security Token Offerings and Initial Exchange Offerings.
- What if We Combine STO and IEO?
If the above evolution tells us anything is that we are heading towards this direction and already there is evidence that there are a few projects that soon will offer their tokens under STEO (Security Token Exchange Offering) format, and soon we will see by our eyes if that idea is effective or not.
Let’s Break It Down
Imagine a funding event that combines the benefits STOs like regulatory compliance, which is crucial if their tokens are to be listed in the United States and internationally. By filing for exemptions, these projects can protect themselves from future cease orders.
Also, since these STOs can be programmed to authenticate who is allowed to buy and sell them, this stops STO holders from trading with any addresses that haven’t been validated.
STOs also offer transparency, and this allows investors to get all the relevant information on the company making the offering. The fact that tokens offered by STOs have intrinsic value is an added plus.
Add those benefits with those of IEOs such as security and convenience which is guaranteed since exchanges carry out KYC and AML processes. There is also the availability of legit projects since the exchanges carry out due diligence. Then add the assurance of getting tokens listed quickly on platforms, and you see why STEOs will be the benchmark for crowdfunding as the crypto industry matures.
Who Will Be the First One?
For now, only dream-oriented social media and crowdfunding platform Dreamr announced their STEO on IDCM exchange, and it seems they will be the first one to check all the boxes.
Chris Adams, CEO of Dreamr, Inc. said:
IEOs are working well as a vehicle for startups to raise funds and build a community. Applying that same method to a Security Token Offering made perfect sense to us, and we’re excited to give the Dreamr community access to an early-stage investment round normally reserved for well off accredited investors.
14 Opinions About The STEO Format
Kevin Hobbs CEO at Vanbex Labs:
Security token offerings on exchanges are a necessary evolution in today’s markets. Traders want 24/7 access to a global market with less fees, and compliance they can trust. Companies want access to that same pool to source capital to grow their businesses. Many traditional exchanges have been looking to do this for years. In 2020 we will see the emergence of trusted regulated exchanges raising funds and trading security tokens.
Shawn McBride, CIO at McBride For Business:
I think using the exchange platform to find a market for the STO makes a lot of sense. Right not everyone is looking for an efficient way to get coins and tokens to the market. This proposed STEO seems to be a way to get people interested in the token and get it to market quickly.
What’s interesting is we are seeing more and more innovation in all securities offerings. The coins/tokens are newer so they are testing a lot. And I think this is a great strategy to try as it seems that it would help more people know that this coin exists.
Lee Hills, CEO at SolutionsHub:
An STEO is a very exciting, natural evolution of blockchain business funding. Initial Exchange Offerings are somewhat dubious given these are simply ICOs delivered to the public on exchanges.
The advantage to purchasers is assurance of a market for their tokens, rather than trying to arrange listing on an exchange with reasonable volumes post-ICO. The majority of alt-coins have struggled for any liquidity in the bear market, as will IEOs – whereas STEOs have meaningful ‘real-world’ considerations underpinning the price, offering the purchaser far greater protections.
Eric Benz, CEO at Changelly:
When looking at the potential for a STEO, the legal implications must be considered and from my experience, this is not easy but, if structured in a smart and efficient way, this could unlock so much value and seriously challenge traditional securities laws globally.
A survey was done by 1XBit platform and apparently most crypto users feel safe if they are offered to invest in an STO through an exchange, this might be because of the fact that STO’s comply by all norms and regulations so that an exchange that carries on an IEO for the security token will also have to comply with all set of regulations that are in place, including extensive investigation into the project that applies for token listings with them, sharing data with others and also have the right set of user registration processes with them. So it is inevitable that security token can only be traded on these fully regularized exchanges thus it eliminates the risk of scams which are apparently very common in the ecosystem that we all work in.
Kyle Asman, partner of BX3 Capital
I don’t think the market is yet ready for security tokens. The infrastructure still isn’t complete, and there isn’t ample liquidity to reap their benefits.
The exchanges aren’t properly licensed, and the regulations are still way too uncertain for, say, a company like Airbnb to call off their IPO to do an STO. Until a company like that decides to take the STO route, I don’t believe this model is viable.
Henry Stanley, CEO at ICOaxiom
I think an STEO is a good idea and sort of a natural progression in the space. While utility tokens were a nest idea, over the long term investors will want ownership stakes in the ventures or projects that they are funding.
I also think it helps the industry as it brings a different class of investors, who may have not be able to purchase utility tokens, may now be able to own security tokens. That is great for the industry.
And Some Opinions From Bitcointalk
khiholangkang on Bitcointalk:
STEO a program that is not different from the IEO only differs slightly from the name, I don’t think it will make a project successful just because it changes the name of the IEO to STEO
Buntel168 on Bitcointalk:
I think that is like IEO, can’t wait to see this new concept of fundraising. I hope STEO will be popular like IEO.
guoyu78 on Bitcointalk:
That is serious, only God knows which crowdfunding method will be following this again. We are yet to completely develop the rest to the fullest, now this is coming to start confusing investors again, different prank just used by some of these projects to make money from investors. I have indeed heard of Latoken, but I thought it was either an ICO or IEO projects, can’t really remember which platform I go to know if them from.
STO has already been created as a security token, and I see no reason why STEO should come up with another method again. We still have IEO and STO, and this two have not yet failed in guaranteeing security of the investors and also giving them enough return on their investment. I think this STEO is just a misplaced priority, and this will be yet another platform we will find difficult again to buy its projects like IEO.
maldini on Bitcointalk:
IEO is the latest version for ICO and recently the latest version of STO that is STEO, STEO has the same concept as the IEO only for securities tokens. I don’t know too many developments in fundraising recently, I hope it can make investors satisfied and return to glory like last 2017.
CryptoTrue on Bitcointalk:
STEO format seems to be a better solution than STO or IEO alone.
Barracuda on Bitcointalk:
I think only the name is different and the main goal is still to collect funds from investors. I don’t think STEO will succeed if the project and the exchange are not good. Because people will not invest in STEO if the project is not good and good, maybe people will not be attracted to much.
bttmember on Bitcointalk:
I think we need more dedicated and established platforms for STOs first because security tokens will be the future where major companies will start tokenizing their shares into security tokens but we have yet to see a fully compliant and functioning exchange for security tokens.
One thing is for sure; there is no going back to the period were projects like NXT offered their ICOs and the lucky few who bought the tokens have gone to see them insanely increase in value. Or the period where Blockchain capital offered its STO which as of now has a +161% ROI which isn’t that big compared to BitTorrent’s ROI of +433% after offering its IEO at the start of the year.
However, investors stand to benefit from the upcoming wave of the next mode of fundraising within the space. It would be wise for all investors to pay attention to STEOs otherwise they may find themselves too late just like it has been the case with ICOs, STOs and IEOs.
So, hopefully this opened your eyes a bit as to the potential next buzzword in the space. I think it will take time because people are still becoming aquiated with STOs and IEOs.
But, whatever moves the space and helps attract capital is certainly welcome.
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We intend on this portfolio being balanced between the Three Pillars of the Token Economy & Interchain:
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